Exciting News from Amazon: VAT Charging Updates on Selling Fees.

 Hey everyone, there's important news from Amazon! They have announced major updates to their VAT charging process on selling fees. Whether you are VAT registered or not, these changes will affect all sellers on Amazon.co.uk. Here's a simplified breakdown of what you need to know.



The Basics of Amazon's Announcement

Beginning August 1, 2024, Amazon will introduce significant updates that impact all sellers:

- Services like Selling on Amazon, Fulfillment by Amazon, and others currently managed by Amazon Services Europe (ASE) will now be handled by Amazon Services Europe (AEU).

- All invoices from Amazon will be issued by AEU instead of ASE.

What This Means for You

If your business is based in the UK, Germany, France, Italy, Spain, or the Netherlands, you will start receiving invoices from the AEU branch in your respective country. This change means that local VAT rules will apply, and VAT will be deducted from your Amazon fees. Most businesses should be able to recover this VAT through their regular VAT return processes.

Breaking It Down

From August 1, 2024:

- Amazon will charge selling fees from a local branch based in your country of residence.

- For UK-based sellers, this means fees will be charged by Amazon’s UK branch, including VAT on all fees.

Why This Change?

Historically, Amazon charged UK sellers PPC (Pay-Per-Click) spending from their UK branch, applying VAT as required. However, other selling fees were charged from Amazon’s Luxembourg office, bypassing UK VAT rules due to a loophole. This allowed some sellers to claim VAT exemption and avoid VAT on these fees. 

With HMRC (the UK tax authority) pushing for tighter controls, Amazon is closing this loophole. Now, all selling fees will be charged from the UK, including VAT, making the system more straightforward and compliant with UK regulations.

Impact on Non-VAT Registered Sellers

If you're not VAT registered and have never claimed VAT exemption on Amazon, nothing changes for you. However, if you’ve been benefiting from higher margins by claiming VAT exemption, this loophole is closing. You will now be charged VAT on all selling fees, reducing your profit margins.

Impact on VAT Registered Sellers

For VAT-registered businesses, Amazon currently doesn’t charge VAT on selling fees; instead, you use the reverse charge mechanism in your bookkeeping. From August 1, 2024, Amazon will charge VAT directly on these fees. While this won’t impact your profit margins (since you can reclaim the VAT), it will require adjustments in your bookkeeping and might have a slight impact on cash flow.

What Should You Do?

- Bookkeeping Adjustments: If you use accounting software like Link My Books connected to Xero, update it to reflect the new VAT charges from August 1.

- VAT Claims: Ensure you claim back VAT on fees during your VAT returns.

- Cash Flow Considerations: Prepare for a small impact on cash flow due to the upfront VAT charges.

Pros and Cons

For Non-VAT Registered Sellers:

- Cons: Loss of VAT exemption means reduced profit margins.

- Pros: None directly, but it simplifies tax compliance.

For VAT Registered Sellers:

- Pros: Level playing field with non-VAT registered sellers, no competitive disadvantage.

- Cons: Minor adjustments needed in bookkeeping and a slight impact on cash flow.

Should New Sellers Register for VAT?

Despite these changes, new sellers shouldn’t rush to register for VAT. Wait until you exceed the new £90,000 threshold to maximize your profit margins.

Have Questions?

Feel free to drop any questions in the comments below.

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